Silverbird: Banking the underbanked
Max Faldin on banks that don’t trust their customers and the original idea for Silverbird.
Back in 2016, I was working in Singapore, pushing hard for the Singaporean bank OCBC to onboard some Chinese eBay merchants that served online customers in Eastern Europe.
But all I got was a pushback. The little conversation I had at OCBC beautifully illustrates the structural problems in traditional banking.
“Why should we onboard them?” one of the regional managers asked me. “After all, we receive less than 2% of the revenue from them and over 98% of the problem.”
By problems, of course, they meant compliance. Banks must ensure that nothing illegal or dodgy is occurring in every cross-border transaction. They pour enormous resources into scrutinising every international payment to investigate what they call “business substance”, which they prove through due diligence. Trust is the mother of compliance in traditional banking.
Due diligence is easy for large corporations with household names or well-established reputations — their business substance is well-known and so banks will support their high-volume transactions no matter how dodgy they look. However, it’s prohibitively expensive to conduct due diligence on SMEs in global or remote settings. Banks routinely block their high-volume transactions or impose limits.
The trust isn’t there
All this led me to realize something fundamental about the way traditional banks operate. The trust simply isn’t there. The vast majority of SMEs don’t have the sort of well-established reputations of large corporations. Some don’t even have education records or a LinkedIn profile. So, they’re ostracised from the banking community — even businesses that have been running for over ten years.
Of course, compliance is an easy word to hide behind. It’s easier for banks to claim that small businesses sending large sums of money abroad are illegitimate than to spend resources on due diligence for a small reward.
There wasn’t a valid argument for onboarding those eBay merchants — this was a structural problem in traditional banking. These were multibillion-dollar banks with 50% EBITDA margins enjoying large accounts from multinational corporations that generate huge profits for them.
In short, they didn’t need to onboard SMEs. And so, they stayed away from them, like the plague.
Traditional banks are outdated
The fact that banks were leaving millions of global SMEs underbanked isn’t surprising. The financial system is wired to serve the interests of large corporations.
From the 16th century onward, international trade belonged to large corporations. Even for most of the 20th century, only large corporations had the power to handle the logistical, financial and regulatory complexity of international trade.
But with the introduction of the internet in the 1980s, SMEs began to participate. They could reach their customers directly through the Internet. Regulations evolved to fit the new world. Globalisation democratised trade. New technologies developed. But one thing didn’t change — banking.
Why weren’t traditional banks harnessing the power of new technology? Automation could have enabled them to conduct due diligence effectively and quickly. Still, traditional banks had no incentive to spend enormous resources on changing their outdated layers of legacy banking for a comparatively meagre return.
The solution to an elitist and inefficient banking system
That’s where Silverbird comes in. I envisioned Silverbird as a means of utilising the power of technology to bridge the banking gap of millions of underbanked global SMEs.
Silverbird uses third-party transactional data — also known as professional bill-leading data — to recreate the supply chains of our customers. It shows how the customers operate, the nature of their geography, their roots, and evidence that they’re moving a physical product from one country to another. This helps us do what traditional banks can’t: trust our customers.
Because we serve exclusively international merchants, we have the luxury to dive deep into each business we onboard.
We’re able to de-risk the customer, onboard them quickly, and support high-volume cross-border transactions without imposing limits. In other words, we can go where traditional banks can’t — or won’t.